Fresh & Easy Neighborhood Market Press Release Confirms Our Recent Report On New Stores

Tesco's Fresh & Easy Neighborhood Market issued a press release today announcing it's hiring employees for three stores in California it plans to open soon.

The announcement confirms our July 5, 2011 story, in which we reported the grocery chain is queuing up nine stores, all in California, for upcoming openings.

The three stores - two in Southern California and one unit in Northern California - Fresh & Easy Neighborhood Market announced it's hiring for today are at the following locations: Long Beach Boulevard at 5th Street and Atlantic Avenue and 33rd Avenue, both in Long Beach, California; and Hesperian Boulevard and A Street in Hayward, which is in the East San Francisco Bay Area.

The two Long Beach stores and the Hayward unit are among the nine upcoming new Fresh & Easy markets the retailer is planning to open in the coming months, as we reported in our July 5 story.

>Read our July 5, 2011 story here: Fresh & Easy Neighborhood Market Preparing For A Spate of New Store Openings Beginning in August .

>Read the press release from Fresh & Easy Neighborhood Market here. 

Fresh & Easy wages

Tesco's Fresh & Easy pays a starting wage of $10 hour for basic clerk positions in its stores, as the grocer notes in its press release.

But what you won't read in today's press release issued by Fresh & Easy Neighborhood Market or in any of the others it's issued since 2007 - nor will you obtain the information in any other publication - is what the fresh food and grocery chain pays store managers and the two levels of management assistants level that comprise the 20-25 employees in each of its stores.

First, unlike supermarket chains operated by Kroger (Ralphs in Southern California and Fry's in Arizona, for example), Supervalu, Inc. (Albertsons in Southern California) and Safeway Stores, or mass merchandisers like Walmart and Target, Tesco's Fresh & Easy pays its store managers by the hour rather than an annual salary.

Currently, the hourly rate for a store manager at Fresh & Easy Neighborhood Market ranges from $42-$45 hour, depending on the perspective manager's experience level.

Additionally, managers of Fresh & Easy stores receive a health benefits package and have a bonus program, along with participating in the company 401K retirement plan if they choose to do so.

The Tesco-owned grocery chain, which currently has 176 stores in California, Nevada and Arizona, has two types of  positions designed to assist store managers - assistant mangers and team leaders.

The assistant managers, and not every Fresh & Easy store has them, make a starting wage of $15 hour at present.

Team leaders, which is a position similar to a head clerk at unionized grocery chains like those operated by Kroger and Safeway, start at $13 hour.

Like all store-level workers at Fresh & Easy that work over 20-hours a week, both assistant managers and team leaders have a health benefits plan that includes medical, vision, prescription drug and dental (the grocer pays about 75% of the premium), and they too can participate in the chain's 401K investment/retirement plan.

All of the rank-and-file employees at Fresh & Easy stores work part-time, in most instances in the 20-34 hours-per-week range.

Most but not all assistant manages work full-time.

The majority of team leaders (usually about three per-store but there can be more or fewer) work part-time, although there are some full-time exceptions.

Fresh & Easy in California

As we've been reporting in Fresh & Easy Buzz since last year, Tesco's El Segundo, California-based Fresh & Easy chain is focusing virtually all of its new store openings this year in California.

For example, so far in 2011 the grocer has opened 22 new stores, all in California. Twelve of those stores are in Northern California. The remaining 10 new stores opened so far this year are in Southern California.

The Golden State is where the majority of Fresh & Easy Neighborhood Market' 176 stores are located.

A whopping 127 units are in California. Of those stores, 101 units are in Southern California, 12 stores are in Northern California and 14 units (seven each respectively in each region) are in the Fresno and Bakersfield metro areas in the Central Valley.

Tesco has 28 Fresh & Easy stores in metropolitan Phoenix, Arizona and 21 units in metro Las Vegas, Nevada.

No new stores have been opened in either region this year. Fresh & Easy Neighborhood Market has no plans to open any new stores in either Nevada or Arizona in August, according to our sources.

In November 2010, Tesco closed six stores in each of the two western states, along with one unit in Southern California. (See here for details.)

Fresh & Easy Neighborhood Market thus far has announced it plans to open one new store in August. That store is at 3rd Street and Carroll Avenue in San Francisco's Bayview District.

We've reported the grocery chain also plans to open its store at Hesperian Boulevard and A Street in Hayward in August, although as we've noted that date could be advanced depending on a number of factors.

Related Stories

July 9, 2011: Fresh & Easy Neighborhood Market (Selectively) Bullish on Commercial Real Estate In California

July 5, 2011: Fresh & Easy Neighborhood Market Preparing For A Spate of New Store Openings Beginning in August

May 18, 2011: Major Changes Coming to Tesco's Fresh & Easy Neighborhood Market Stores

January 14, 2011: Tesco 'Banking' on California in 2011 For Fresh & Easy Neighborhood Market USA

November 4, 2010: Fresh & Easy Neighborhood Market Confirms Our October Reports On 10 New Stores Opening in Early 2011

May 15, 2008: Fresh But Never Easy: Tesco's Long But Rapid South-North March in the Nation-State of California

April 19, 2011: Tesco's Fresh & Easy Neighborhood Market Posts Biggest One-Year Loss Yet - $307 Million Loss on Sales of $818 Million

February 19, 2008: Tesco's Fresh & Easy Serving as an Economic Stimulus Package of Sorts for California's Troubled Commercial Retail Real Estate Industry

[Also: Click on the following links - new store development, California, Fresh and Easy and commercial real estate, Fresh and Easy Northern California, Fresh and Easy Southern California, new store development, Tesco Fresh and Easy California March - for additional related stories.]

Fresh & Easy Neighborhood Market (Selectively) Bullish on Commercial Real Estate In California

News/Analysis

Tesco's El Segundo, California-based Fresh & Easy Neighborhood Market may be struggling to stem what appear to be its no-end-in-site losses - around $900 million so far since November 2007 and about $300 million in Tesco's latest fiscal year ended February 26, 2011. But that's not stopping it - instead perhaps it's encouraging  it - from being bullish on commercial real estate in selected parts of California.

Fresh & Easy Neighborhood Market, which Tesco set up as an independent U.S.-based corporation when it launched the food and grocery retailing venture in Southern California in 2006, has closed on two major commercial real estate purchases in Southern California over the last four-to-five weeks, including its biggest deal we're aware of to date.

That deal: This week Tesco's Fresh & Easy Neighborhood Market closed on a $7-million purchase of 21815 Hawthorne Boulevard in Torrance, California, where the grocery chain plans to turn a 10,720-square-foot vacant building on what is a 1.69 acre parcel into one of it small-format fresh food and grocery stores. The now vacant building previously housed a CoCo's family-style restaurant.

Fresh & Easy Neighborhood Market bought 21815 Hawthorne Boulevard from the Kinoshita Family Trust, according to Woodspear Properties, the commercial real estate firm that represented the seller, and Highland Partners, which represented Tesco's Fresh & Easy in the deal.

The $7 million purchase comes on the heels of another multi-million dollar commercial real estate deal Tesco's Fresh & Easy closed on the second week of June, which is the $2.1-million purchase of a 1.12 acre parcel in the Central Coast California city of San Luis Obispo, where the grocery chain plans to build and open its first Fresh & Easy food and grocery market in the city.

According to our sources, Fresh & Easy Neighborhood Market is currently planning an early 2012 opening for its first store in the coastal city, which is home to one of the largest, most popular and top-ranked California State University campuses, Cal Poly San Luis Obispo.

Fresh & Easy Neighborhood Market bought the parcel in San Luis Obispo from Halfterty Development Company.

According to Stephen Leider and Clarice Clarke, who head up Lee & Associates' Central Coast offices in California, the parcel Fresh & Easy bought is one of three the real estate firm is marketing at the Village at Broad Street development in the city's popular downtown area . The three-parcel development is set to include a mix of residential housing and retail, they said.

The San Luis Obispo store will mark an important geographical milestone for Tesco's Fresh & Easy in its coastal route march from Southern California to Northern California, which is one of the two south-to-north paths it's taking as part of its strategy to have stores throughout the Golden State.

The other is the inland or valley route, which goes from Southern California, over the Grapevine and into the Central Valley - where there are 14 Fresh & Easy stores in the Bakersfield and Fresno regions and one unit about 100 miles north (of Fresno) in Modesto so far - and on into Northern California's Bay Area - where there are currently 12 Fresh & Easy stores - and eventually into the Sacramento region and other parts of the northern portion of the Golden State

The San Luis Obispo store will mark the nearly midway point in the coastal route between Southern California and coastal Northern California. The closest store in that south-to-north coastal route march so far is a recently opened Fresh & Easy market in Santa Maria, which is about 50 miles from San Luis Obispo on the south Central Coast.

Fresh & Easy has a future store location in Seaside on the Northern California coast and is currently negotiating with the landlord of a vacant roller rink in next door Monterey for another location in the region.

Seaside and Monterey are at the northern end of that south-to-north coastal route march, which follows the Pacific Ocean and offers some of the most scenic views in the U.S.

Fresh & Easy Neighborhood Market owns a few of its 176 stores, although the majority of the units are leased.

For example, it owns its store in Pacifica, California, which opened on March 9 of this year.

Fresh & Easy also owns the store in the 5800 Third Street development in San Francisco's Bayview district, which is set to open August 24, along with not-yet-opened Northern California store locations in the East Bay Area cities of Antioch (at Lone Tree & Golf Course) and Vallejo (two units), as well as a few other future store sites in the Golden State.

Fresh & Easy bought both future store locations in Vallejo, at Oakwood Avenue & Springs Road and Tennessee and Tuolumne, about a year ago after getting what its real estate chief thought was a good price due to commercial real estate values having dropped significantly in the city as a result of the recession and housing crisis. Vallejo has been one of the Northern California cities hardest hit by the recession. In fact, a couple years ago the City of Vallejo filed for bankruptcy, making it one of the first municipalities in the U.S. to do so.

The grocery chain paid about $1.5 million for the about 1.2-acre Oakwood Avenue location and a little over $1 million for the Tennessee and Tuolumne site, which is a vacant about 14,000 square-foot building that once housed a Grocery Outlet store.

Fresh & Easy's strategy is to purchase rather than lease selected parcels in places with historically solid commercial real estate appreciation, such as the San Francisco Bay Area, coastal California (north, south and central) and certain other regions in the state.

The strategy is a continuation of what Tesco has been doing for many years at home in the United Kingdom, which is to purchase selected properties its stores sit on, hold the properties for a given period of time and after they've reached a certain level of appreciation, bundle a set number of the properties into a portfolio and sell them, taking multi-year lease backs on the stores. Tesco then uses the proceeds from these sales to finance existing store remodels and new store construction. It's worked well for the retailer in the UK over the years.

The global retailer plans to do the same thing with the properties it's been selectively acquiring in the U.S. since about 2008 through its Fresh & Easy Neighborhood Market. Most if not all of the properties it's bought are either stores in California or parcels for future store development, like Torrance and San Luis Obispo in the Golden State.

Fresh & Easy Neighborhood Market operates a fairly large real estate department out of its El Segundo, California headquarters, particularly for a chain of 176 stores located in just three states with annual sales of about $800 million, which is currently the case for the Tesco-owned grocer.

Tesco's Fresh & Easy operates over a dozen real estate regions in California, Nevada and Arizona. Each region has a real estate director who is employed by the grocery chain. The real estate directors each work with a commercial real estate brokerage firm in each region, which it has named as its broker of record. For example, Pacific Retail Partners is Fresh & Easy's broker in the two real estate regions it has in Los Angeles.

Although the commercial real estate slump that hit the U.S. - and California, Nevada and Arizona, the three states Fresh & Easy operates in, particularly hard - most of the regions in California where it has bought properties have historically strong long-term appreciation levels, although the slump that still continues will result in Fresh & Easy Neighborhood Market getting far less of a return over a ten year period than it would have had it bought and sold the properties in the 1990's, for example.

However, the Bay Area and coastal locations remain excellent long-term commercial real estate investments, unless the last century of commercial real estate history in the state is proven wrong.

Meanwhile, Tesco's Fresh & Easy Neighborhood Market has a commercial real estate problem of its own, in our analysis. That problem is the grocery chain is sitting on, based on our research and calculations, about 60 sites it either owns or holds leases on (the vast majority being leased) that it hasn't yet opened and 13 locations - six each in metro Las Vegas, Nevada and metro Phoenix, Arizona and one in Southern California that it closed in November 2010 - it's paying monthly rent on (in most cases) but generating zero sales from.

Many of these locations, including about 30 (a few have been opened this year) in Northern California, were acquired by Fresh & Easy in late 2007-early-2008, which means in most of these cases it's been paying monthly rent on what are mostly vacant buildings it plans to turn into stores for going on four years. Many of the other units are early-to-mid-2009 acquisitions as well.

Having so many future locations it's making lease payments on is a major financial drag on Tesco's Fresh & Easy Neighborhood Market.

Tesco plans to open many of these Fresh & Easy stores between now and the end of 2012. Tesco says it will have 300 Fresh & Easy stores open by February 2013. There are currently 176 units, which means opening 124 new stores between now and then.

But there are also a number of Fresh & Easy units - particularly in metro Las Vegas and Phoenix but also in Southern California's Inland Empire region and the Central Valley - Tesco hasn't decided if it will open or not. Because Fresh & Easy has long term leases on these sites, coupled with the continued commercial real estate slump in California, Nevada and Arizona, it's basically stuck with the locations regardless if it opens those stores or not.

As a result, until it opens or disposes of these numerous non-producing store sites, their existence will continue to be a financial drag on Fresh & Easy Neighborhood Market and Tesco, in our analysis.

Related Stories

July 5, 2011: Fresh & Easy Neighborhood Market Preparing For A Spate of New Store Openings Beginning in August

May 18, 2011: Major Changes Coming to Tesco's Fresh & Easy Neighborhood Market Stores

January 14, 2011: Tesco 'Banking' on California in 2011 For Fresh & Easy Neighborhood Market USA

November 4, 2010: Fresh & Easy Neighborhood Market Confirms Our October Reports On 10 New Stores Opening in Early 2011

May 15, 2008: Fresh But Never Easy: Tesco's Long But Rapid South-North March in the Nation-State of California

April 19, 2011: Tesco's Fresh & Easy Neighborhood Market Posts Biggest One-Year Loss Yet - $307 Million Loss on Sales of $818 Million

February 19, 2008: Tesco's Fresh & Easy Serving as an Economic Stimulus Package of Sorts for California's Troubled Commercial Retail Real Estate Industry

[Also: Click on the following links - new store development, California, Fresh and Easy and commercial real estate, Fresh and Easy Northern California, Fresh and Easy Southern California, new store development, Tesco Fresh and Easy California March - for more related stories.]

Fresh & Easy Director of Real Estate Charges 'Breach' Over Commercial Real Estate Agent's E-Mail; Agent Fires Back

Southern California-based commercial real estate professional Chris Rodriguez publishes the Retail Chatr Commercial Real Estate Blog, which is read regularly by his commercial real estate industry colleagues in California and throughout the U.S.

Mr. Rodriguez has worked on a few deals over the last few years involving commercial property leases and related transactions involving Tesco's Fresh & Easy Neighborhood Market, which is based in the Southern California city of El Segundo.

Chris Rodriguez has also written generally about Fresh & Easy in the past in his Blog.

But yesterday he wrote a post titled: "Fresh & Easy Real Estate Director Making Empty Threats" that's about as first-person of a post as a scribe can write.

In the post Chris Rodriguez publishes an e-mail he received from Fresh & Easy director of real estate Tom Scorer regarding a real estate lease transaction involving Tesco's Fresh & Easy Neighborhood Market that the commercial real estate agent had just completed.

Here's what Mr. Rodriguez writes in the opening paragraph of his post yesterday (January 19, 2010):

"I just had to post this. I just closed a Fresh & Easy ground lease that was purchased by Fresh & Easy on 12/31/09. Earlier today, we sent out an email blast announcing the sale of the property. I received the following email (with his attorney cc’d as well) from UK transplant Tom Scorer, Real Estate Director for Fresh & Easy at 3:25 PM this afternoon."

Will will let the rest of Chris Rodriguez's story in his Retail Chatr Commercial Real Estate Blog speak for itself - and let him speak for himself since he is the author of it.

Click here to read the full post: The e-mail to Chris Rodriguez from Tesco Fresh & Easy's director of real estate, along with the email response Mr. Rodriguez returned to him, plus some commentary on the topic from Chris Rodriguez.

Tesco's Fresh & Easy Serving as an Economic Stimulus Package of Sorts for California's Troubled Commercial Retail Real Estate Industry

Tesco's Fresh & Easy Neighborhood Market venture is providing a major benefit to the troubled commercial retail real estate industry in Southern California: it's giving the region's suggish commercial-retail building economy a big boost by buying and renovating numerous long-empty retail buildings, purchasing abandoned lots to build new stores on, and in some cases signing leases in mixed-use developments which have long been searching for a retail anchor.

Of the about 30 -to- 35 Fresh & Easy grocery stores currently open in Southern California (out of 50 total stores open to date), the majority of those units have gone into previously empty retail buildings, which the company has gutted and completely remodeled to fit its 10,000 -to- 15,000 square foot Fresh & Easy grocery market format.

Many of these previously empty buildings were former Albertsons' supermarkets. Before Boise, Idaho-based Albertsons, Inc. sold the supermarket company a couple years ago to SuperValu, Inc., it closed numerous underperforming Albertsons' stores throughout Southern California. Tesco's Fresh & Easy has leased many of these empty supermarkets and remodeled them for their Fresh & Easy stores. In addition, Fresh & Easy also has leased a number of empty CVS and Rite-Aid drug stores, along with a few other empty retail buildings, for their Fresh & Easy grocery market locations in the region.

Tesco decided on this combination strategy of renovating abandoned commercial retail buildings and building some from-the-ground-up new stores for a couple of reasons.

First, with the existing stores, since the building's shell, electrical, plumbing and other infrustructure is already in place, it's much more inexpensive to simply gut the store's interior and redo the outside, and create a Fresh & Easy store, rather than having to build from the ground-up. The cost savings can be considerable.

Additionally, because most of these retail buildings had been empty for some time, Tesco was able to get rather favorable lease costs and terms on them. This combination of lower building costs and cheaper rents allowed the retailer to have lower upfront costs and overhead, which makes sense considering Fresh & Easy's low-price positioning on basic grocery items and prepared foods. Since the stores average only about 13,000 square feet, the ongoing operating costs are much less than for example the previous tenent, Albertsons, which operated 35,000 -to- 55,000 square foot stores in the same boxes.

Further, since Fresh & Easy's strategy is to open as many stores as fast as it can, especially in Southern California, the rapidity in which the grocer can renovate one of these empty retail buildings is such, compared to building a store from the ground-up, that it allows for it to meet this goal of opening a critical mass of stores in a very short period of time.

In the situations where Tesco has thus far build stores from the ground-up, such as the just-opened store in the Southern California city of Compton, the grocer was able to negotiate very good financial terms for the location because the city of Compton offered the retailer a package of financial incentives to build and open a store in that community which is underserved by grocery stores. Before the Fresh & Easy store opened in Compton last week, the city of 100,000 had only one decent-sized grocery store.

Commercial real estate agents in Southern California have told us Fresh & Easy is grabbing locations nearly wherever it can--the empty retail stores, locations in shopping centers that are looking for a retail food store anchor, and in lower-rent districts which are avoided by most other grocers.

For example, one commercial real estate agent told us about a Fresh & Easy store set to open late this year in the city of Murrieta. The store is located in a shopping center that won't even be completed when the Fresh & Easy store opens. The neighborhood is a relatively new one in the city. Most of the houses and condominiums in the area were just completed in 2004, the agent told us. Further, there are numerous vacant lots where houses have yet to be built.

The Fresh & Easy store is nearly right next to the residences, the commercial real estate agent said. The neighborhood isn't expected to actually have enough residents to support a store until at least two years from now. However, he told us Fresh & Easy wanted to grab the location and get the store up and running long before that happens, or if it happens.

City officials and commercial landlords in Southern California communities ranging from Anahiem and Orange in Orange Country, to Riverside and Upland in the Inland Empire, to Fallbrook and Vista near San Diego, are all happy that Tesco has been renovating so many of these abandoned retail buildings at such a fast clip. The chain has become a corporate commercial real estate stimulus package in and of itself for the region's depressed market.

We do wonder though, with such rapid new store development, if the grocer won't have to take a hard look in a year or so at many of its locations and seriously evaluate the store performance in those neighborhoods. Keep in mind that Albertsons and the drug chains abandoned those locations--and the buildings--primarily because the stores were underperforming. While its true because of their smaller size and start-up nature that Tesco will likely define performance much differently than Albertsons did for example, many of these locations still are suspect in the medium -to-long run.

Right now though Tesco isn't concerned about that. In fact it's employing a similar strategy in its plans to move into Northern California, opening its first stores in the San Francisco Bay Area in late 2008 or early 2009. The grocer has already inked deals for 18 locations throughout the Bay Area. Many of these 18 locations are leases on empty commercial retail store buildings--and a number of those buildings are, you guessed it, former Albertsons stores, which were closed as part of that acquisition a couple years ago and have remained vacant.

Additionally, Tesco has worked two deals in the city of San Francisco similar to the Compton deal. The retailer is locating two stores in the low-income Bayview-Hunters Point neighborhood in the city, and will receive incentive packages for doing so. Both of these stores will be built from the ground-up, like the Compton store. Bayview Hunters Point is an underserved (by grocery stores) neighborhood in San Francisco which has been actively trying to lure a grocer which sells lots of fresh foods to locate in the neighborhood for over two decades.

Tesco's Fresh & Easy Neighborhood Market venture in California comes at a much needed time for retail commercial real estate in the state. Unemployment is rising rapidly in the Golden State, the state government is facing a multi-billion dollar deficiet, three of the state's counties are numbers one, two and three on the top ten list of U.S. counties with the most foreclosed homes, and California's commercial and residential building industry is at a standstill. Many economists in the state believe California is already in a recession.

In the commercial real estate sector layoffs are growing. Many agents are leaving the field before being layed off. Retail building landlords are seeing numerous tenants go out of business. Empty buildings in the main are staying empty. For many of those in the commercial retail real estate industry Tesco's British invasion of California is welcomed with wide-open arms. Right now, it's the hottest deal working in the industry.

Tesco's Fresh & Easy Neighborhood Market's new store building and opening program is serving as a healthy economic stimulus to the state's depressed commercial retail industry. This should continue for the rest of 2008 and through 2009.

The jury is still out on whether many of these stores have medium to long-term viabiltiy in certain locations. We believe a major evaluation by Tesco of many of these stores will come in about two years, towards the end of 2009. We also believe that when that evaluation comes, many of the locations will be deemed underperforming.

However, Tesco doesn't seem the least bit concerned with that issue at present. And, local governments, retail commercial real estate agents, and retail building and shopping center landlords in California aren't complaining. Right now, many of them are competing for the Fresh & Easy account, trying to be the one who can find the British grocer the best locations and empty retail buildings the fastest, and for the best deal.